Question on adjusting caloric count when exercising

According to myfitnesspal I should eat about 1600 calories a day to reach my weight loss goal. I'm also exercising and using a Jawbone UP fitness bracelet to monitor my exercise, calories burned etc. Myfitnesspal is able to link with the UP to monitor my exercise. Occasionally myfitnesspal pal adjusts my daily calories to account for calories burned during exercising. Should I ignore this adjustment and keep the calorie count at 1600 or should include the additional calories that myfitnesspal is adjusting for based on my exercise for the day?

MFP is a NEAT method calculator (Non Exercise Activity Thermogenesis)...what this means is that when you set your activity level, it does NOT include exercise...thus exercise becomes extra activity that needs to be fueled. When you log exercise with MFP or use something to sync your exercise with MFP, your GOAL is increased because that's the way the NEAT method works. Do not confuse with TDEE method, the other common method of calorie counting used by many other applications and sites.

The benefits of the NEAT method are that it can motivate otherwise sedentary people to get up and move their *kitten* and be able to eat more. Also, it doesn't punish people for missing workouts, etc...as long as you net to your calorie goal, you lose weight regardless of exercise or not. The TDEE method is not so forgiving...though many switch to it once they've established a good fitness routine. Sadly, many people just come here and haven't a clue as to what method they are using and many severely under-eat and malnourish their bodies.

I've lost 35-40 Lbs with the MFP method and eating back about 70% or so of my exercise calories as per my HRM (to account for estimation error).

I have found for myself that if I do not eat back some of the exercise calories I do not see any positive changes in my weight or inches.
It was not until I joined MFP that I found that is what I was doing wrong. I was supposed to eat 1500 calories and burn around 600 per day. I became very frustrated as I stuck to my calorie intake and my calorie burn was more than 600 but I was not losing weight. I actually gained some weight. I became very frustrated and gave up on the whole idea of becoming healthy and losing weight.